Europe
There was more flight to safety for most of Wednesday as European shares sold off and core European bonds were bought which eased into the afternoon after the US re-opened diplomatic ties with Cuba. The Russian ruble recovered while crude oil prices slipped but then rebounded again as the Greek election was taking place ahead of the US central bank meeting.
When the Russian finance ministry on Tuesday said it had not been discussing introducing capital controls that proved enough to allow the USD/RUB to come down from its record high of 80 to settle closer to 70.
On Wednesday, news that the Russian central bank was using its ample foreign reserves to intervene improved liquidity in the interbank market and the ruble appreciated.
In a further effort to counter financial instability, the Central bank of Russia introduced seven new measures including recapitalising its banks and measures to minimise FX risk from credit markets.
The stabilisation of the ruble stemmed declines in other emerging market currencies but shaken investors were unwilling to buy risky assets ahead of the event risk posed by the Federal Reserve.
An improvement in wage growth in the UK as well as the drop in inflation increase the average household’s real income and is a strong boost to the UK’s consumption-led economy.
Minutes revealed the Bank of England’s Monetary Policy Committee voted 7-2 for a fifth straight month to keep interest rates at 0.5%.
UK shares were reacting to global turmoil with the lingering concern that falling oil prices are indicative of slowing global demand, not such a good thing for the success of UK industries reliant on exports.
Dixons Carphone shares were on the up after reporting strong first half profits undoubtedly buoyed by increasing British enthusiasm for Black Friday. The review of its underperforming German and Dutch business was well received.
WPP Plc (LONDON:WPP) was lower after announcing succession plans for its current Chairman.
US
Data revealing consumer price deflation in November added to tentative trading ahead of the FOMC meeting but positive political events with a thawing of US relations with Cuba lifted sentiment slightly in early Wednesday trading.
CPI had its biggest monthly drop since 2008 as deflation took hold in November leaving the annual rate of consumer price inflation at 1.3%. The inflation / employment data divergence continues in the US and puts Fed policy into question. Does the Fed move towards hiking rates because the labour market is improving or do they hold off because of low inflation? The way Janet Yellen chooses to emphasise these two factors will be a big clue on the timing of the first rate-hike. Core inflation did rise by 0.1% in November since most of the price drop was explained by lower oil prices, nevertheless 0.1% is hardly hyperinflation demanding prompt Fed action.
FedEx Corporation (NYSE:FDX), a bellwether for the US economy saw earnings fall in the last quarter despite the reduced transport costs from lower oil prices.
FX
After falling yesterday the US dollar strengthened today representing a degree of uncertainty going into the FOMC meeting.
Eurozone final CPI was confirmed at -0.2% month over month and sent the EUR/USD down over 100 pips on the day towards 1.24 after a brief stint above 1.25.
No further dissent at the Bank of England and missed unemployment expectations sent GBP/USD back below 1.57 despite stronger wage growth.
Commodities
Gold traded slightly lower on what seems fairly unfounded speculation that the CBR will start selling its gold reserves.
Copper prices stabilised after two days of selling beneath $3 per lb on weak Chinese data and falling commodity prices.
Oil prices whipsawed around $60 per barrel in Brent crude; starting the day lower but moved higher later in the session.
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